Are Tax Deed Sales Lucrative?
Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes
Are Tax Deed Sales Lucrative?
Most Popular Reply
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
11yAs others have said it can/will be state specific. I invest in FL (Orange, Seminole and Volusia) and this is based on those areas.
First you somewhat need to understand the tax lien foreclosure process. A lien holder purchases the certificate at sale, if the property owner doesn't pay the back taxes then the certificate holder can proceed to sale. They apply for tax sale and any potential parties must be notified (other lien holders, owners ect). Once that is done the property is auctioned and if it sells "you" become the owner via a tax deed.
First: FL is not a redemption state. Meaning after the sale there is no period of time in which the owner could come back and pay the back money (including any associated costs) and reclaim ownership of the property. This is true in other states, and you need to know how long that is to "plan" your course of action.
Second: You do receive a "free and clear" tax deed...sort of. While other liens are extinguished by the sale, you do not have clear title. There is always a possibility that the notification was not done properly and there is a lien holder who has rights to the property...this places a cloud on title. This is a problem in the fact that any lender will require title insurance in order to fund a loan against the property.
Two ways to clear this up. One you wait 4 years during which time no one will insure title (that I know of). You could sell the property, but anyone buying would need to be a cash buyer, and they would be buying with the same clouded title until the 4 years was up.
Second way is you pursue a "quiet title action". This is basically a legal proceeding to verify that all lien holders/owner's rights were extinguished and the property title is clear. Once that is done you would now have a marketable title again and could sell or refinance using conventional lending. This costs about $3-4000 I believe.
The big thing to understand here is "clear title" and "free and clear" (of liens and encumberances) are two vastly different things. As long as you understand the difference, and budget accordingly then you're on the right track.
98 Replies
Originally posted by @Ned Carey:
@Christina R. and @J Scott were extremely lucky and their return is not at all typical.
Not typical? It's typical of EVERY tax lien I've ever purchased! ;-)
- Lender · Tampa, FL · Member since 2014 · 97 posts · 56 votes11y
We just picked up two properties in Orlando (Avalon Park) through tax deed. One was tight on margin but desirable due to the lease rates. The other appraised for $479,000. We got it with a small HOA lien only to find the bank tried foreclosing ... on a deceased dependent. It is not as much fun doing it with other people's money, but if the investment is yours to make, you could do a lot worse than tax deeds in FL!
My advice is to have a real estate attorney who is very experienced in forensic audits do the prelim work for you. Clear titles can actually be done for $1,000 or less if you know how to bring a firm or title company business. Further, if you know the banks that can't keep their records straight, you can kill it in this arena. We have been able to literally give away properties free and clear because our attorney helped us know what to look for before the auction, which has proven more important than the property itself. When you can give away property to single moms with children and veterans returning from overseas (without a mortgage)... it's like Christmas all the time!
Go for it! All the best to you in your endeavors, @Zamir Kazi!
- Investor · DMV Maryland · Member since 2013 · 867 posts · 370 votes11y
Originally posted by @Ned Carey
I helped @Matt Schelbergearn how to do this an he outbid me on a bunch of stuff. My attorney got mad. he said stop teaching other people to do this! LOLFor those of you reading along this far, it takes a LOT of work to be successful at this. We inspected and evaluated 5,000 properties before the sale. @Christina R. and @J Scott were extremely lucky and their return is not at all typical.
I know, Matt, that you dind't mean it like THAT, lol. I wouldn't walk around by myself at night in this area but I know I've seen worse in the city.
Ned teased me constantly about buying this lien because he couldn't believe it would actually be worth considering and I tease him back about how he indirectly did help me buy this particular lien and look, J and I struck gold!!! LOL.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
sounds like a million is not big money in the scheme of things in that sand box.
thanks for the detailed response.. I suspect you find your deals through experience and beating the big boys to the deals. keep it up.. I think we all need to chip in for your hat collection...
- Rental Property Investor · Baltimore, MD · Member since 2013 · 281 posts · 257 votes11y
When this happens it is a safe bet that Ned that will be there to dance on the gravestones.
- Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes11y
@Kevin Cook Thanks! I actually own a few units out in Tampa! How often do you come to Orlando for the auction? How are the Hillsborough auctions?
@Kevin Cook Who is clearing your titles now?
- Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes11y
@Kevin Cook Any recommendation for a Real Estate Attorney in the area?
Wow! This thread is proving very interesting (and educational)! My wife and I, too, are in the learning phase. I'll be picking up the Flipping Houses book and hopefully locating some good legal resources and title companies.
At some point, we, like @Zamir Kazi, will be going to watch the Tax Deed Auctions. I've been looking at the available listings (this is difficult, because they only have the Parcel Number, and you have to put that into the Appraiser site to get an address and details on the property), and we plan to do a "sim". We'll pick some properties, guestimate what we are willing to pay, and then go pretend to do it. When we get comfortable, we'll then do it for real, and the ball will be rolling.
I am thoroughly amazed at the levels of support this community provides to newbies. I appreciate it all. And it says a lot about how you feel about what you are doing!Great thread everyone. I am focusing on the Harris County tax deed sale in Texas and have a question about IRS liens. I have read that the IRS has 6 months? to redeem on these properties. Is this true of all states? If I were to buy a property at the auction with an IRS lien on it, what is the risk? Am I risking them simply redeeming from me and I would get my money back or am I risking having to pay off the lien? Also, after the 6 months is over, the IRS cannot do anything is that correct?
Also, can someone tell me where to find information on IRS liens? I have only been able to determine if and when there is an IRS lien on a property but not the actual dollar amount.
Thanks.
- Real Estate Investor/Syndicator · Orlando, FL · Member since 2014 · 109 posts · 22 votes11y
@Cal Ewing You can just call the IRS directly, if you can show you have the ability to satisfy the lien they will disclose the current payoff.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes11y
Originally posted by @Cal Ewing:
Great thread everyone. I am focusing on the Harris County tax deed sale in Texas and have a question about IRS liens. I have read that the IRS has 6 months? to redeem on these properties. Is this true of all states? If I were to buy a property at the auction with an IRS lien on it, what is the risk? Am I risking them simply redeeming from me and I would get my money back or am I risking having to pay off the lien? Also, after the 6 months is over, the IRS cannot do anything is that correct?
Also, can someone tell me where to find information on IRS liens? I have only been able to determine if and when there is an IRS lien on a property but not the actual dollar amount.
Thanks.
IRS liens have a 120 day right of redemption (at least as long as that) everywhere. I believe that the IRS redemption rights extend at least as long as other redemption rights that a specific state may allow by statute, but I could be wrong on that.
IRS liens usually are found like any other judgment, at the courthouse; the IRS does not have to "attach" to a specific parcel number, just to the named individual(s) or entity.
@Steve Babiak
Since I do not live near the courthouse I was hoping there was some kind of online source to find out details on specific IRS liens. I guess my final question regarding IRS liens is this...
Do I need to be afraid to bid on homes with IRS liens? If the worst case scenario is that they redeem the property then that is alright. I just don't want to have to be responsible for paying the lien off should I be the new owner of the property.
Originally posted by @Cal Ewing:
Do I need to be afraid to bid on homes with IRS liens? If the worst case scenario is that they redeem the property then that is alright. I just don't want to have to be responsible for paying the lien off should I be the new owner of the property.
You would not be responsible to pay off the lien. The short version is, the IRS has 120 days to redeem the property (i.e. to pay you what you paid). So the worst cast scenario is that you would have that money tied-up for a short period of time and not working for you (the IRS wouldn't pay you interest). Also, if you put a lot of money into the house for upgrades you could potentially lose that money. However, from what I've read, IRS redemptions are rare.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes11y
The IRS liens for 120 day redemption has no bearing on the length of other non-IRS liens. some other liens may last 5, 10 or even 20 years. And while they do attach to the person, any lien still viable at the date of sale, even a tax sale would still be against the property even if the former owner doesn't own the property. IOW, "A" own a property and has a lien recorded (and in some case unrecorded) against them which is still viable. The property is sold at a tax sale that doesnot wipe out all liens, then the lien is still against the property even with a new owner not "A".
Your example is not the worst case scenario. What often happens in the real world is that the IRS claims that they did not have proper notice. there have been cases where notice was sent to one IRS office, but the IRS said that that was not the proper office to send the notice.
Their concept of proper notice is you have to send the notice to the IRS office that handles the personal tax returns for where the former owner would have files their tax return as well as the office where they would file their corporate/partnership/entity returns. You as the purchaser may not know which IRS offices those are especially if the former owner lives out of state.
Then the IRS wants notice sent to the US Attorney General, and to the US Attorney for the district where the property is located. Unless you have proof of all FOUR notices, the notices are deficient. That would be a deficiency in 99.9% of the cases. So essentially in every case the IRS does NOT have proper notice. And the notice clock of the 120 days does NOT start until the IRS has proper notice. Ask me how I know this?
- Orlando, FL · Member since 2015 · 10 posts · 1 vote11y
Zamir, Have you gone to the auctions?Isvit lucrative?
On the county city office page, I see bid info, etc; but not the address. How do I find the address? Where are the auctions, and what time each Thursday?
Can one win a bid, just pay the tax fres, interest;and truly own the home without a mortage in Orlando?
Is a county near Orange, better for tax deeds?
Can one live in it, after pay the tax deed, and is there a four year wait in Orange or residing counties?
If one live in home, can one get insurance?
Homestead vs non homestead?,,and how does one find the zoning of each property?
Are the auctions with alot of people?
Do you need a real estate license?
Thankyou.
- Investor · Westhampton, NY · Member since 2015 · 14 posts · 4 votes11y
Zamir,
As everyone on this long thread has stated, every county has own rules. i have been watching many of the online Florida sites and MANY of the sales have the rules below. Purchasing the first and second liens DOES NOT give you any advantage to owning the property. You have to start and pay for the foreclosure process and then the property goes to auction. You will get your money and interest but unlike many other states and counties in below example (Palm Beach FL, ready for sale now), buying the liens that are bid down will only give you option to pick up second year lien at full rate. Property goes to highest bidder after you initiate foreclosure.
READ every counties rules carefully and per Ned, the hedge funds are chasing these especially in nicer areas in Florida.
Pete
Now you own a tax certificate, so what can happen next?
A certificate holder is not allowed to contact the owner of the property carrying the delinquent taxes for two years. Such contact can result in costly legal action.
When the owner pays the delinquent taxes, the interest is calculated and a check is sent out with a notice to the certificate holder.
The certificate can be sold and transferred (for about $2.25) to another name.
Let’s say the owner doesn’t pay the delinquent taxes. Two years from the date of the delinquency (April 1) but no longer than 7 years, the tax certificate holder can request a tax deed application. This process starts the foreclosure of the property. To foreclose the property, the certificate holder making application for a tax deed has to pay the Constitutional Tax Collector an application fee, a title search fee and all amounts required for redemption or purchase of all other outstanding tax certificates, interest, omitted taxes, and delinquent taxes as well as applicable Clerk of Circuit Court fees, relating to the real estate. In most cases the property is scheduled to go to sale at public auction by the Clerk of Circuit Court within 3 to 4 months from the date of the tax deed application. Holding the certificate creates no advantage towards owning the property. The highest bidder becomes the owner of the property. If the property is a non homesteaded parcel, the opening bid is the amount of the taxes, accrued interest, plus costs and fees involved in a tax deed application. If it is a homesteaded property, the opening bid is half the assessed value plus the tax certificate face value and costs
- Jacksonville, FL · Member since 2015 · 183 posts · 22 votes11y
Originally posted by @Zamir Kazi:
Personally, the answer is no. Waiting around for 2 years during which time the defaulter can pay the taxes and redeem the property isn't a route suitable for every investor. 2 years is a long time to just wait around. Often to win the bid, you have to essentially agree to a lower rate of interest than others which can be as low as 0%. There are also some risk with this strategy especially if the defaulter files bankruptcy which could complicate issues.
- Developer / Investor · Denver, CO · Member since 2014 · 64 posts · 31 votes11y
Originally posted by @Zamir Kazi:
Hello all,
Recently I have been looking into tax deed sales, and a friend of mine told me if you win a tax deed auction, you get the title free and clear. Is this true? What is the process of doing so?
They hold an auction every Thursday in my area, was planning on going this week and checking it out.
From my understanding if you win a tax deed auction, there is a waiting period for other lien holders to claim that their lien is more substantial to yours.
Would I need to get a Real estate attorney involved? How much does this all usually cost?
Thanks in advance for your help!
Hi Zamir,
Our strategy for tax sale acquisitions is one of leveling and cash flow management. Due to the long delay in acquiring tax sale properties, my investment group looks at these deals as ways to insure future business. And in my state, they pay 1.2%/month (total 18%/yr) on the money tied up. WIN - WIN.
Also, depending on your state, you can sell your tax sale certificates. We've dealt with sellers whom have acquired their properties at tax sale for $10k and are selling for $110k (I'm in DC so the prices are high) and we were going to rehab and sell the property (the deal fell through) for $300k.
If done right and employing the right strategy, tax sales can be home runs.
But as everyone else has stated, it if very important to learn the in's and out's of your state (sometimes even county's) tax sale regs. Some states even have classes prior to the tax sale to educate buyers.
Hope this helps,
Scott
- Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes11y
@Account Closed the way I understand it is it is bid to 0 first year to assure first right of next years to get the full 18%. banks think annualized ROI of 9% is good. But if the bid is just 1/4% you still get a min of 5%. In other words, 0%=0% but <5% = 5%.
- Real Estate Investor · Indianapolis, IN · Member since 2014 · 316 posts · 165 votes11y
Two good books I read that were recommended on a podcast (sorry forgot the guy's name) were really informative. "Profit by Investing in Real Estate Tax Liens" by Larry B. Loftis and "Zero Risk Real Estate" by Chip Cummings.
Going to Houston sale in September.
- Jacksonville, FL · Member since 2015 · 183 posts · 22 votes11y
Each state might vary. Most states have a 'cap' on what the investor is able to earn but when you have multiple investors bidding on the same property, it is typically a matter of who is willing to accept the lowest rate of interest which may often get very low to 0.
If you are a rehabber, with excess inventory of properties that need to be rehabbed, the issue is not where to deploy cash to hence tax certs may not be on the radar. The tax sales route seems a strategy for those trying to deploy idle cash.
Having cash 'unavailable' for 2 years or however long it takes the defaulter to redeem the property, just to get 5% could be very costly. Each investor typically have a different business model and different requirements in regards to the return on their investment.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes11y
You have two components: tax lien certificates, and tax deed sales. If an owner defaults on paying property taxes, the county will sell a certificate. These are done on a bidding process. The certificate holder has no ownership interest in the property. After two years, the holder may file with the clerk of courts to force a sale. Until the sale, the property owner has the right to redeem by paying all the past due taxes and interest on the certificate. Once a TAX DEED SALE is held and funds tendered, the right, title, and interest of the owner are lost to the winning bidder. Once you are the successful bidder, you may hire an attorney to quiet title immediately. You can legally extinguish any and all mortgages. I don't know about IRS liens, but generally speaking any city or state liens may not be extinguished and transfer with the property. This could include things such as water and sewer assessments, etc. There is a lot of competition locally for tax deed sale properties, and I see many investors market to them prior to the sale. I purchased one property in 2014 that was scheduled for a tax deed sale. I had not marketed to the owner, but did see three solicitations from buyers when I was visiting with the owner. All three arrived on the same day! This shows the level of competition for properties!
- San Diego, CA · Member since 2016 · 15 posts · 9 votes10y
Originally posted by @Stephen Hundley:
talk to someone local who has done it. Different laws in every state and county. Plan on keeping the house for a buy and hold bc it's almost impossible to get title insurance.
The title insurance piece is not necessarily true, more of a myth fully supported by successful investors that keeps new investors - competition - from the auctions. Depending on what state you are woking in, you could file a quiet title action. You could hire a service, such as Tax Title Services to issue a certificate accepted by most title companies nationwide. You could get a quit-claim deed from the previous owner and any lien holders (Easier in some cases than others) OR you could sell it as a lease-option/contract for sale (large, non-refundable down payment and monthly payments) with a physical closing date scheduled after the statue of limitations causing the unmarketability of title has expired.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.